The aluminum spat between the United States and Canada, as urgent as it seemed a few weeks ago, will have faded from most people’s minds by now. On September 15, mere hours before Ottawa was set to identify retaliatory measures, the U.S. announced it would drop the 10% tariffs on Canadian primary aluminum that were imposed in August.
Clearly, the Trump administration weighed the costs of a potential trade war with Canada during the presidential campaign and determined that the risk of collateral damage was too high. Canadian counter-tariffs on $3.6 billion worth of U.S. products would have imposed real economic costs on many of Trump’s potential supporters.
But beneath the headline stories of trade war brinkmanship lay a more sinister subplot involving multinational commodity traders and a complex network of aluminum producers seeking to profit from the fallout of a U.S.–Canada tariff fight.
Global commodity trading is dominated by an oligopoly of multinational firms whose market power is large enough to set prices and distort local supply and demand patterns. Together, the top 16 trading companies pulled in more than a trillion dollars in revenue in 2011, with the top five earning more than $600 billion combined—just short of leading financial and tech firms. Many trading firms are based in tax havens such as Switzerland and Singapore where they are able to take advantage of low corporate tax rates and jurisdictional loopholes.
While advocates of commodity trading claim these firms are beneficial to the economy by smoothing out “market imperfections” (i.e., mismatches in the timing of consumption and production), in reality commodity traders seek to make mega-profits by buying low and selling high by any means necessary, including cornering the market.
Metals trading is no exception. Switzerland-based Glencore PLC, one of the world’s largest mining companies, has increasingly relied on its trading division to earn billions in revenue. As both a metals producer and commodity trader, Glencore is able to flex significant market power over global metal prices. In 2015, Glencore intentionally cut back its production of zinc to profit from higher global zinc prices. At the time, the company accounted for 8% of all zinc production and controlled half of the global zinc trade.
Although Glencore produces no aluminum itself, its trading division has been increasingly involved in procuring global supplies of the metal, with an eye to inflating global aluminum prices. In 2013, the Commodity Futures Trading Commission, a U.S. government agency, opened an investigation into reports that a subdivision of Glencore, Xstrata, was involved in an aluminum price-fixing arrangement where aluminum spot prices were artificially inflated by lengthening storage times and increasing rental costs.
Glencore’s global aluminum purchasing agreements include Century Aluminum, a primary aluminum producer based in the U.S. that was once a wholly owned subsidiary of Glencore and which Glencore continues to hold a 47.5% stake in.
Century is one of two primary aluminum producers calling themselves the American Primary Aluminum Association (APAA), which sent a letter to the USTR in June, alleging that Canadian imports of primary aluminum to the U.S. had surged above historic levels. The other APAA member, Magnitude 7, is run by a former Glencore aluminum trader.
Why would Glencore and its affiliates attempt to revive the aluminum spat between the U.S. and Canada? Simply put, profit. The vast majority of commodity traders and producers sit on large quantities of excess inventories, ready for sale when demand and/or prices spike. The biggest metals traders such as Cargill, Trafigura and Glencore can afford to warehouse stockpiles far longer than smaller competitors, placing them in an advantageous position when prices increase.
In 2018, during the first U.S.–Canada trade fight, the U.S. Midwest aluminum premium more than doubledafter tariffs were levied on Canadian aluminum imports into the United States. Those sitting on hidden inventories of aluminum in non-exchange-approved warehouses (so-called off-warrant stocks estimated at 2.5 million tonnes in the U.S. alone) were able to liquidate part of their inventories to fill the supply gap while taking in large profits.
While the Trump administration may have relented for now, the fact is the USTR merely called a time-out on tariffs and replaced them with unilaterally announced quotas on Canadian primary aluminum imports from September until the end of the year. Imports in excess of 105% of these monthly quotas, which are anywhere between 23% to 57% below the level of imports during the same months in 2019, will result in the retroactive imposition of 10% tariffs, according to the USTR’s statement.
In other words, the U.S.–Canada trade war is far from over, and whether it resumes hinges in large part on the outcome of this presidential election. One thing is for certain, however: multinational trading giants will continue to do everything in their power to manipulate global commodity prices to their advantage, including resorting to the grotesque spectacle of inflaming protectionist sentiments even as they simultaneously engage in multi-jurisdictional tax avoidance, corruption and money laundering. Ultimately, no political strategy is deemed off-limits in the corporate pursuit of mega-profits.
Sune Sandbeck is a national research representative at Unifor, Canada’s largest private sector union.